and in the main he laid them truly and well; but he did not rear the complete superstructure. His work was transitional. He recognised, for example, the existence of market values as affected by temporary and special circumstances; and he instituted an instructive comparison between value and the sea, which, with a surface which is "always ruffled by waves, and often agitated by storms," "everywhere tends to a level," and "never is at an exact level." But he did not show, what later inquiry has emphasised, the interaction of market and normal values. They are chiefly distinguished by the comparative length of the periods of time over which they extend; but the starting-point of investigation must in either case be the mutual play of demand and supply, and it is only by analysing supply that we reach that cost of production, which is given so prominent a place in Mill's exposition as the determining cause of normal value. He did not adequately show how it was influenced by demand, the law of which is similar for market and normal values. Nor, again, did he fully recognise the closeness of the connection between the theories of domestic and international value. His treatment of the two is distinct, and yet the play of demand-and supply must be present in both, and furnish the starting-point of investigation. Nations are indeed, so far as the movement of labour from the less to the more advantageous employment is concerned, conspicuous examples of non-competing groups; but capital exhibits every year less unwillingness to migrate from country to country, and the idea of non-competing groups is not entirely foreign to markets which are confined to the geographical limits of a single country. The tendency of subsequent inquiry has been to show the similarity of the two theories, and to discover the operation of similar laws in both, although the particular conditions of their application may differ, and the cost of carriage to the market be a more important element in international than in domestic trade. Thirdly, and lastly, Mill did not apply his theory to the exchange of services. He did indeed extend the application of it step by step from other commodities to money, and from money in domestic trade to money as a factor of the foreign exchanges; and the development he thus traced in the successive chapters of his third book was admirably systematic. Nor are his allusions to wages and profits in these chapters open to much criticism; but he never brought the theory of distribution of his second book into harmony with his theory of value. Later inquiry has taken this important step, and shown how the theory of value applies to the determination of interest, profits, and wages, as well as prices. The terms on which capitalists will exchange their capital for the labour of employers and workmen, and the terms on which employers and workmen will exchange their own services in the production of wealth for those of one another, are held to be determined by influences affecting demand and supply. There are market rates of interest, profits, and wages, due to transient and special circumstances, and extending over periods of time which are relatively short; and there are normal rates, to which these market rates tend in the long run to conform. A capitalist will not obtain a higher rate of interest for the loan of his capital than that which represents the marginal utility of the capital to the borrower; and he will not in the long run be content with a lower rate than that which will satisfy the postponement of enjoyment which its I accumulation has involved. A skilled workman will endeavour in the long run to secure for his services a wage which will repay the expenses of production of his skill-the expenses, that is, of his rearing and training-and, if he did not succeed in this endeavour, the supply of skilled workmen would in time fall off. But the employer on his side will not be willing to give higher wages than those which represent the marginal utility of the service to him, and the position of the workman and the capitalist with regard to his earnings of management will be similar. The more scarce, again, a service is, and the greater its utility, the higher will be the reward it will tend to secure; and the smaller its utility, and the more abundant it is, the lower will be its reward. The normal prices of services are thus, like those of commodities, determined by the mutual play of demand and supply; and among the influences affecting supply the expenses of production occupy a predominant place. Perhaps the main defect of Mill's exposition is his failure to recognise this; although the fact should never be forgotten, which his separate treatment tends to emphasise, that there are elements connected with human feelings and affections in the exchange of services which do not enter into the exchange of inanimate commodities. CHAPTER V. JOHN ELLIOTT CAIRNES. 1824-1875. ECONOMIC METHOD. Mill's Predominance-His Successors and Critics-Cairnes' Life-His Courageous Endurance of Physical Pain-The Character of his Writings-Their Defects-His Slave Power-His Essays on the Gold Question-His Deductive Method of Investigation. Cliffe Leslie's Life-His Criticism of the Deductive Method-The Advantages of Both Methods, (1) the Abstract and Deductive, (2) the Inductive and Historical-The Relation of Economics to Sociology-The Special Advantage of the Historical Method in placing in their Right Setting the 'Exploded' Theories of the Past -The Usury Laws. IN the last chapter the position of Mill in the history of English Economics was brought under review. We saw that his work was transitional; and that the theory of value, which he held to be 'fundamental,' and to be presented in its final shape in his treatise, had since been criticised from various stand-points, and developed in different directions. For some years, however, after the publication of his Principles, it seemed as if his exposition of political economy, like that of Ricardo before him, would be unquestioned. Bagehot has described1 his influence as 'monarchical,' and remarked that modern students, instead 1 Economic Studies, p. 215. of beginning with the older economists, approach them through the medium of Mill, "and see in Ricardo and Adam Smith what he told them to see." But, after a lapse of some twenty years, his supremacy was disturbed. The assault came from various quarters, and was not in every case intended. Mill himself in 1869, in a review of W. T. THORNTON'S book On Labour, abandoned1 the wages-fund theory, which he had previously accepted and explained. Jevons in 1871 published a Theory of Political Economy, in which he expounded, and illustrated by the aid of mathematics, that conception of 'final utility' which was noticed in the last chapter. He supplemented rather than refuted Mill, but he represented his own position as widely divergent; and, in a preface to the second edition of his book, he declared that he was "ever more clearly coming" to the "conclusion" "that the only hope of attaining a true system of Economics" was "to fling aside, once and for ever, the mazy and preposterous assumptions of the Ricardian school." "That able but wrong-headed man, David Ricardo, shunted the car of Economic science on to a wrong line, a line, however, on which it was further urged towards confusion by his equally able and wrong-headed admirer, John Stuart Mill." In 1874 Cairnes issued a book on Some Leading Principles of Political Economy newly Expounded, in which he, like Jevons, supplemented Mill's theory of value, especially by the emphasis which he laid on that conception of noncompeting groups' which has already been explained. But, like Jevons also, he represented Mill's attitude on some points as approaching absurdity, although he avowed himself to be his disciple. In 1870 Cliffe Leslie began a 1 See Mill's Dissertations and Discussions, vol. iv. pp. 43, etc. |